US Airways, AMR Talks Said to Intensify as Deadline Looms

A US Airways Group Inc. aircraft, back, taxis after landing behind an aircraft of AMR Corp.'s American Airlines, at Reagan National Airport in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

Feb. 7 (Bloomberg) -- US Airways Group Inc.’s merger talks
with bankrupt American Airlines are intensifying as the sides
try to agree on control of a combined company before
confidentiality accords expire next week, people familiar with
the matter said.

No decisions have been made on how ownership would be split
between creditors of American parent AMR Corp. and US Airways
investors or who would lead the carrier, said four of the
people, who asked not to be identified because the discussions
are private.

A deal would create the world’s largest airline, vaulting
it past the rivals that eclipsed American amid a consolidation
wave during the past decade. A combined carrier would be valued
at almost $13.1 billion, according to Dan McKenzie, a Buckingham
Research Group Inc. analyst in New York.

“The merger solves US Airways’ international network
problem and creates a better combined entity,” James Corridore,
a Standard & Poor’s equity analyst, said in a note to investors
today.

The possible merger gained support late last month from an
ad hoc group holding $1.5 billion in unsecured AMR debt, people
familiar with the matter said then.

The bondholders are pushing for a deal by Feb. 15, the
expiration date for non-disclosure agreements they signed with
the two airlines. Talks may still falter, and there is no
guarantee of a merger announcement by then, the people said.

Equity Split

Besides giving those investors access to proprietary
information, the accords restrict them from trading in AMR or US
Airways debt.

Ed Stewart, a spokesman for Tempe, Arizona-based US
Airways, declined to comment about the deliberations, as did
Sean Collins, a spokesman for American.

AMR has urged that creditors get 80 percent of the equity
in a merged airline versus 20 percent for US Airways
shareholders, while US Airways favors a 70 percent to 30 percent
division, people familiar with the matter have said.

Still unresolved is the role American Chief Executive
Officer Tom Horton would play after a merger, the people said.
US Airways’ merger proposal calls for CEO Doug Parker to hold
that position as well as chairman at the combined airline.

AMR’s board is pushing for Horton to have an active role to
represent American’s interests and help ensure that $1.2 billion
in annual savings and incremental sales promised by US Airways
materializes, one of the people said. He became CEO after AMR
filed for bankruptcy on Nov. 29, 2011.

US Airways Management

“We would prefer US Airways management to remain in
control,” said Corridore, who recommends buying US Airways.

If merger terms are agreed upon and approved by the
bankruptcy court, the deal would be proposed as the
reorganization plan to bring AMR out of Chapter 11 protection. A
combination of US Airways, the fifth-biggest U.S. carrier, and
No. 3 American would surpass United Continental Holdings Inc. to
become the world’s largest airline, based on passenger traffic.

“Hopefully very soon we’ll have a chance to influence and
work with a new management team, one that will provide the
leadership we all want and need to guide American Airlines back
to the top of the industry,” Keith Wilson, president of the
Allied Pilots Association at American, told members in a message
late yesterday.

US Airways earlier said it would keep the American name for
a combined carrier and its Fort Worth, Texas, headquarters.

Parker’s Pursuit

Parker has been pursuing American since January 2012.
Horton agreed to consider merger options in restructuring after
saying the airline preferred to exit court protection and then
weigh consolidation.

US Airways’ stock has more than tripled since the day
before AMR’s Chapter 11 filing, amid speculation that Parker
would succeed, compared with a 27 percent advance by the
Standard & Poor’s 500 Index. The shares rose 3.8 percent to
$15.11 today in New York.

AMR’s $460 million of 6.25 percent convertible notes due in
October 2014 have soared more than fivefold during its time in
bankruptcy. They fell 1.7 percent to 95.5 cents on the dollar as
of 12:48 p.m. in New York, according to Trace, the bond-price
reporting system of the Financial Industry Regulatory Authority.